The Australian dollar will this week become the third currency to trade directly with the yuan as China continues the internationalization of its currency. The country's central bank has granted ANZ (ANZBY.PK) and Westpac (WBK) the rights to trade in the dollar and renminbi. With China being Australia's largest trading partner and buying over 25% of its exports, the move should help cut trading costs.

"The biggest bubble in recent history is heading for the mother of all hard landings," writes SocGen's Albert Edwards, tagging onto his bearish partner-in-crime Dylan Grice's analysis of Australia. Channeling Minsky, Edwards notes the lack of volatility in Oz's economy (no recession since 1991) leads to an excessive build-up in debt and a "bigger crash down the road."

Among Australia's troubles are banks that can't pass on RBA rate cuts (50 bp last night) because - reliant on overseas markets - the lenders' funding costs are on the rise. "Infatuation" with Oz's debt (foreign ownership gov't bonds is skying) may be propping up the aussie, writes Anthony Doyle, but not for much longer. FXA-0.7%.

The Australian dollar is hammered - off 1.1% against the greenback - after the RBA cut rates by a greater-than-expected 50 basis points overnight. The central bank's statement is notable for its emphasis on Europe, not China, as a threat to the Aussie economy. Sydney +0.8%.

Answer: Australia. Question (courtesy of Dylan Grice): "What do you call a credit bubble built on a commodity bull market built on a much bigger Chinese credit bubble?" The country has 5 of the world's most 15 expensive cities, runs a current account deficit despite booming commodity sales to China, and has seen a steep rise in debt/income. Shares: EWA+10.9% YTD, the aussie: FXA+1.1% YTD.

The stage is set for the RBA to cut rates after Australia's CPI rises just 0.1% in Q1 against expectations for 0.6%. Annual inflation comes in at 1.6% vs. 2.1% expected. The central bank has made clear only this CPI report stood between the current 4.25% benchmark and something lower. It meets on May 1. Aussie -0.4% to $1.0280.

Might Genworth's (GNW-21%) delay of its Australian mortgage insurance business IPO be ringing a bell for the Oz property market? The company cites deteriorating market conditions in the Aussie mortgage market "as lenders accelerated the processing of late-stage delinquencies ... at a higher rate and severity than expected." Westpac WBK-1%.

"When we've gone through our book, we've seen signs of rapid property value decretion," says Stuart Grimshaw, MD at Bank of Queensland of the lender's expected H1 loss due to loan impairments. He expects continued challenges in coming years, much of it due to the powerful Aussie dollar. FXA remains near all-time highs.